Problem 18-2 Underwriting and Flotation Expenses The Beranek Company, whose stoc
ID: 2728218 • Letter: P
Question
Problem 18-2
Underwriting and Flotation Expenses
The Beranek Company, whose stock price is now $40, needs to raise $13 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $36 per share because of signaling effects. The underwriters' compensation will be 4% of the issue price, so Beranek will net $34.56 per share. The firm will also incur expenses in the amount of $175,000.
How many shares must the firm sell to net $13 million after underwriting and flotation expenses? Round your answer to the nearest whole number.
shares
Explanation / Answer
Total shares to be issued:
= (Funds required+Issue expenses)÷Net proceeds per share
= ($13,000,000+$175,000)÷$34.56
= 381,221 Shares